Growth plans are being pared back in England, while Land Rover will get closer.
by Paul A. Eisenstein 3/10/2003

Larger, faster, roomier, a showcase of new technology, the new Jaguar XJ was designed to cap the comeback of a brand long hovering on the brink of disaster.

A decade ago, the British automaker was perilously close to insolvency, surviving only through the deep pockets of its new U.S. owner, Ford Motor Co. Piece by piece, Ford struggled to reverse decades of decline, investing billions of dollars in products and plants.

Today, Jaguar is setting all-time sales records with the broadest line-up in its history. Yet despite recent successes, the mood is surprisingly somber. A nearly four-month delay in launching the new XJ underscores the challenges Jaguar continues to face. And now, as it moves more to the mainstream of the global luxury market, the British marque faces a backlash from rivals no longer willing to cede ground without a fight.

“The XJ has always been the quintessential Jaguar,” and the new car represents not only what Jaguar has been, but what it will be, explained Mike O’Driscoll, U.S. head of Ford’s so-called “Brit Group,” which includes Jaguar, Aston Martin and Land Rover.

Chaos in England

After snapping up Jaguar in 1989 for $2.5 billion, the U.S. automaker discovered a company in chaos. Jaguar’s assembly lines required over 200 man-hours to build a car—ten times more than a top-line Lexus. Quality was abysmal, with as many as 11 defects per vehicle, compared to less than one for the Japanese marque. Product development ran years late and millions over budget.

“We had no idea just how bad the situation was,” Ford CFO Allan Gilmour admitted at the time, as sales plunged and losses mounted. By 1992, Jag’s global sales plunged to just 22,074, leading Ford to give serious thought to writing its investment off.

Instead, the U.S. automaker invested even more. The ancient factory in the British Midlands was completely rebuilt. Some of Ford’s best and brightest, including the man who would later become chief operating officer, Nick Scheele, were assigned to the troubled subsidiary. Slowly, things started turning around.

Productivity started rising, while quality, surged into the upper tier of the closely followed J.D. Power & Associates charts. By 1997, worldwide sales had doubled, the U.S. alone accounting for 25,000 units.

That year marked the beginning of the most aggressive product blitz in Jaguar’s history. First came the new XK8 sports car. That was followed by the S-Type, Jaguar’s first “saloon,” or mid-size sedan, in more than three decades, and the X-Type, a compact sedan.

In the U.S., which accounts for nearly half of Jaguar’s total sales, volumes soared to 40,000 in 2000, and 60,000 last year. Worldwide, over the last decade, Jaguar has sold more cars than it did during its first 40 years, O’Driscoll noted.

An unwelcome wake-up call

With it seeming like there was no place to go but up, former Ford CEO Jac Nasser boldly predicted sales would top 200,000 a year. Jaguar, he declared, would serve as the centerpiece of Ford’s fast-growing line-up of luxury brands.

Last year, however, was a wake-up call. Driven largely by the delay in launching the new, all-aluminum XJ, Jaguar suddenly found itself awash in $500 million of red ink, its first loss in a decade. And while sales continued growing, the torrid pace was visibly cooling.

That wasn’t entirely unwelcome, admitted O’Driscoll, for a decade’s expansion had required “an enormous scale shift in the company,” affecting everything from production design to distribution.

It had another, unanticipated impact, we well. “We’re now on the competition’s radar screen,” added O’Driscoll. As a result, other luxury marques, like Lexus and BMW, are now taking aim at Jaguar, matching the low-price leases on the S- and X-Type, and promoting their own all-wheel-drive options.

That makes the launch of the XJ even more critical. “We are going to get it right,” asserted Scheele now Ford COO, even though the decision to delay the launch will ultimately cost between 10,000 and 15,000 units of lost sales. But that’s insignificant in the long run, he insisted, compared to the damage that would’ve been done by launching with quality problems.

On the right track?

Initial XJ reviews have been positive. That should help soften some of the criticism leveled against the X-Type, skeptics complaining the small Jaguar sedan is too much like the European Ford Mondeo, with which it shares platforms.

Jaguar officials don’t deny the need to re-think their high-speed growth strategy. “Could we have been more focused in some areas? Yes, but it’s not a bad track record,” said Mark Fields, who took over last year as director of Ford’s Premier Automotive Group – which oversees international luxury brands, including Jaguar.

There is a need to have a “vigilant eye” towards preserving brand attributes, added Fields, a hint that future products, such as the eventual replacement for the X-Type, will be more truly Jaguar in style and feel. That’s not as easy as it might seem. In developing the new XJ, Jaguar had to recognize that consumers are less and less willing to make sacrifices, even for good design. The new sedan is larger in virtually every dimension in order to provide much-needed cabin and cargo space.

In a nod to market trends, Jaguar also will enter the diesel market this year, a critical move considering that in some European markets, such as Austria, diesels now account for as much as 70 percent of sales. An XJ diesel will launch before year’s end, according to Scheele, and will be followed by high-mileage powertrains for the S- and X-Type sedans.

That should expand Jaguar’s growth opportunities. But even so, the automaker is backing away from Nasser’s most optimistic sales forecasts. The fact remains that Jaguar is a niche, rather than mainstream brand, even within the luxury segment, stressed Fields.

Plans for other Jaguar models, such as the F-Type sports car, are, at least temporarily, on hold. Meanwhile, the PAG is moving ahead with efforts to link Jaguar with sister division Land Rover. The idea is that this pairing will permit each of the two brands to focus on what they do best. Yet dealers who carry both nameplates will be able to offer a reasonably full range of high-end cars and trucks.

Over time, cautioned Fields, Jaguar “has to make sure we have a sustainable niche business.” And that means a realistic business plan that’s a good bit smaller than had been envisioned only a few years ago.